Cummins to pay record-setting $1.675 billion US environmental fine

Truck engine maker Cummins Inc (CMI.N) has agreed in principle to pay a $1.675 billion fine for installing devices on hundreds of thousands of engines to allow them to emit excess pollution, the largest-ever civil penalty for a Clean Air Act violation, the U.S. Justice Department said on Friday.

The Department said Cummins allegedly installed so-called "defeat devices" to bypass or disable emissions controls such as emission sensors and onboard computers.

The department said Cummins used defeat devices on 630,000 2013 to 2019 RAM 2500 and 3500 pickup truck engines and undisclosed auxiliary emission control devices on 330,000 2019 to 2023 RAM 2500 and 3500 pickup truck engines to cheat emissions control requirements.

U.S. Attorney General Merrick Garland said "preliminary estimates suggest that defeat devices on some Cummins engines have caused them to produce thousands of tons of excess emissions of nitrogen oxides." It is the second largest environmental penalty deal ever reached, the department said.

EPA Administrator Michael Regan said "vulnerable communities are more likely to reside near highways where these harmful emissions are concentrated, making this agreement critical to advancing our environmental justice agenda."

Cummins (CMI.N) said it expects to take a nearly $2.04 billion charge in the fourth quarter to resolve regulatory claims relating to nearly one million engines from the Justice Department and California Air Resources Board.

"The company has seen no evidence that anyone acted in bad faith and does not admit wrongdoing," Cummins said in a statement.

The formal settlement, which will need court approval, will be made public as early as next month.

RAM-owner Stellantis (STLAM.MI) declined to comment. The 960,000 vehicles have been recalled and the emissions control software will be updated, Cummins said, which previously took a $59 million charge for emissions recalls.

Cummins first announced in April 2019 it was internally reviewing its emissions certification process and compliance.

Cummins previously said U.S. regulators were scrutinizing Nissan (7201.T) Titan trucks from the 2016 to 2019 model years and that it was developing a new software calibration and hardware fix and would recall the trucks.

Cummins previously took $59 million in charges to address the costs of the RAM and Titan recalls. Nissan did not immediately comment Friday.

The company, which also counts PACCAR (PCAR.O) and Daimler Trucks North America as its customers, said about $1.93 billion is expected to be paid in the first half of 2024.

Jeffries said in a research note the charge "is significant but is not expected to impact normal business operations." Cummins shares were down 2.3% in early afternoon trading to $238.47.

In August 2022, the U.S. business of Fiat Chrysler Automobiles -- now a unit of Stellantis -- pleaded guilty to criminal conspiracy and paid nearly $300 million to resolve a multi-year U.S. Justice Department diesel-emissions fraud probe. FCA US LLC was also sentenced to a three-year term of organizational probation.

Volkswagen paid $1.45 billion in U.S. civil penalties in 2017 after the German automaker in 2015 disclosed that it had cheated emissions tests by installing defeat devices" in 11 million vehicles worldwide, using sophisticated software to reduce emissions only during emissions tests.

Volkswagen in total settled U.S. civil and criminal actions prompted by the emissions scandal for more than $20 billion.

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